What happens to the debt that’s been settled?

Once a debt is settled, the borrower is no longer legally obligated to pay the full amount of that debt, as the creditor and debtor have agreed to a reduced payoff amount. In California, if the amount is reduced to less than half of the original debt, the debt is considered to have been settled in full. The creditor may then decide to report the newly settled amount to credit bureaus, or they may report the full original amount as having been paid. In either case, the debt is considered to be "settled" and the borrower can no longer be held liable for the amount that has been written off. The borrower is also not responsible for any additional interest or fees that were accrued before the settlement, even if the debt was not fully paid off. The only way for the debtor to restore their credit rating after having a debt settled is to make timely payments on their bills and responsibly manage their credit.

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What happens to the debt that’s been settled?

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